Companies that enact stock splits are usually top performers. The reason is fairly simple: You only get a lofty stock price by performing well. Historically, companies choose to split their stock when they believe the price reached levels at which investors may be dissuaded from buying it due to a perceived high price.
One company that has never split its stock but may consider doing so in 2025 is Meta Platforms (META +0.16%), formerly known as Facebook. Meta went public as Facebook in 2012, trading around $38 per share. Now, the stock trades for nearly $600, which could be a threshold at which it starts thinking about splitting its stock.
Meta's stock price is near the point at which its peers split
If we're speculating if Meta will split its stock, we need to look at when some of its peers have chosen to do so. The obvious comparisons are with its fellow "Magnificent Seven" stocks: Apple, Microsoft, Alphabet, Amazon, Nvidia, and Tesla.
All of these companies, except Microsoft and Meta, enacted stock splits in the past few years, so we have some recent history to lean on.
If we use Alphabet and Amazon as examples of when Meta may announce a stock split, we will have to wait a few years. Both companies split their stock 20-for-1 in 2022, when each traded for more than $2,000 per share. This brought them down to more reasonable levels, at a split-adjusted $100 per share.
Apple, Tesla, and Nvidia were more in line with where Meta is now when they last announced their stock splits. So, if Meta follows these three companies' lead, a split could occur in the near future.
Apple last split in 2020 when it traded for about $500 per share. Tesla was a little higher when it announced stock splits in 2020 and again 2022, when it traded for $2,000 and $840 per share, respectively. And Nvidia split its stock in 2021 and 2024, when it traded for $760 and $1,200, respectively.
At nearly $600 per share, we're approaching the zone where Meta may choose a split. And the way things are shaping up, it could very well be much higher next year.
Meta's latest results were phenomenal
Meta Platforms' business is truly excelling right now. Its Llama generative AI model is seeing massive adoption by customers in many industries, and its advertising platform is thriving. All of these factors combined to produce 19% year-over-year revenue growth in the third quarter, with earnings per share (EPS) rising 37% to $6.03.
NASDAQ: META
Key Data Points
However, some investors are concerned that Meta will spend too much on building out AI, since it said that 2025 capital expenditures will see "significant" growth. But I'm not worried. This temporary line item could pay off massively in the future if Meta's AI model becomes one of the winners in the generative AI race.
If Meta does well in this race, there's a lot of upside. If it flops, it will return to the company it once was: a social media powerhouse that produces a ton of cash flow. I think the risk-reward landscape of the stock is quite promising, and you can pick up shares for a fairly reasonable valuation.
At 29 times trailing earnings and 20 times 2025 earnings, Meta is reasonably priced for its current growth.
META PE ratio, data by YCharts; PE = price to earnings.
As a result, I think the stock price is set to increase throughout the rest of 2024 and into 2025. A strong performance could persuade management to split the stock. Regardless, Meta Platforms is a great stock to buy now, and a split announcement would be a cherry on top.
